Workshops on the Web
Christopher Henson, Stamford

Many executives of traditional financial service firms view the Internet market as a space in which their brands will become inevitably commoditized. For insurers in particular this is a market which seems to do little more than aggregate capacity and offer it at auction. The accessibility of the net further 'cheapens' the experience. Insurers who participate find themselves in competition with banks, mortgage brokers, investment firms, even car selling sites.
This is a market run on the bare knuckle rules of ‘quicker’ and ‘cheaper’, squeezing further an already stressed industry. The third rule of Internet commerce, ‘better’, seems mainly to be about how glossy you can make your site look to attract 'eyeballs'.

But like it or not, this is a market in which your customers are buying information, services and products. And it is maturing rapidly as more buyers from older demographic groups come online. As it matures the initial impulses of buyers for quick, cheap and easy purchases is developing toward a more substantial customer 'experience' than the pure aggregators can provide. The Internet is a perfect vehicle for these auction-based business models but it also is an unexplored medium for communicating value. Delivering ‘better’ does not have to mean building slicker brochures with a few services attached.

Customer expectations increase along with the ability of the Internet to feed them. One-dimensional transactions defined by price alone have shelf lives as short as in the traditional marketplace. Harnessing the power of the Internet to deliver ‘better’ transactions will allow companies with real value to sell to overcome the emphasis on price alone and engage with customers who can be retained, rather than simply bought.

Instant distribution, in and of itself, will not reduce a brand to a commodity. Delivering your product or service to your customer quicker than any of your competitors is, after all, a desirable competitive advantage. Its one part of great customer service. The real challenge is to keep that product in the hands of the customer. If you can do that only by competing on price then you have indeed reduced your brand to a commodity.

Integrating Products with Service

In online vertical markets, such as those around the individual financial services, the costs and margins involved in your product cannot long be concealed from your customers. The pressure to demonstrate 'value' will inevitably flush them into view. So if your business model requires that your margins remain invisible to the customer, then your business model must change, if you intend it to compete successfully online.

‘Price’ in the e-business environment, as in the real world, is not always decisive in the buyer's purchase decision. When it is not, it
becomes a secondary factor and the product or service itself moves to the forefront. In the electronic marketplace, this is the point toward which customers are moving and where products can be turned into switching costs.

The integration will occur through a three-part process consisting of technology, content and services. The application of the technology, unless it is proprietary, will be rapidly copied. Even when it is proprietary as, for example, much of the Mac operating system is, other systems can quickly achieve the same purposes, sometimes at less cost. Technology’s principle role in this process is to enable ‘content’ quickly.

Content is the graphical display and presentation of your product to customers attracted to your web page. Information products are all content but few information products yield sustainable competitive advantage. Rarely can financial and insurance products be patented except in certain details. One well-known American insurance group is considered by many to be the industry's most versatile originator of new products and has historically used innovation to create a ‘first mover’ advantage. But in the Internet marketplace, where the speed with which good ideas can be copied is accelerated, even first mover advantage may become negligible.

Only through services can sustainable competitive advantage be created and there are several example of how services, integrated with products, are creating switching costs in other industries. The most visible example, literally and figuratively, is at Gateway Computers Inc.

Gateway has traveled from cyberspace to the brick and mortar world and opened what seem to be storefronts. In fact, they are not storefronts, they are workshops. In these workshops they ‘engage’ with customers in the selection, design and hence the pricing of their products. The order is then sent for fulfillment to wherever the product is assembled.

This collaborative engagement creates a product integrated with a service which, translated to a financial product or insurance coverage, would be a switching cost. The customer has a stake in the product which exists only as long as he or she remains with that supplier.

Engaging the Customer

This is not a complicated process but it is not a ‘click and mortar’ solution, as that term has come to be understood. The traditional company which adds a web site to its marketing strategy in order to display content and refer customers to an intermediary is not ‘engaging’ its customers in a transaction. It is not adding a workshop on the web. It is simply displaying the same product line in a slightly different way. It has the necessary components of technology and content. It may have products with services such as claim filing, contact an agency, check billing status etc., attached to them. But this is the same ‘build it and they will come’ strategy and it is obsolete in cyberspace. It does not go that one step further and add a service strategy aimed at creating switching costs from products and services.

To briefly continue the analogy with Gateway’s process, the service strategy needed to do the above first requires a product that works. Established brands have a clear competitive advantage at this stage. Financial services firms with established reputations have already proved that their products ‘work’.

Secondly it requires consultants, not just sales people, who understand the dynamics of the markets their customers operate in and who can teach their customers how to use and benefit from their offerings. There may or may not be an advantage to the established firm at this point. It depends on how their representatives are
deployed. Do they think of themselves as consultants or are they sales people? Are they seeking to engage customers with solutions that address the needs of both buyer and seller or are they simply moving products off the shelf, with a bit of advice attached? In the physical world the same situation exists but on the Internet you have the ability to do either, consult or sell, on a large scale and immediately. If you want to sell, stay where you are and wait. If you want to consult, you do what Gateway has done, but in this case you move the workshop to your web site.

Thirdly, it requires that your consultants, whether employees or agents, be supported by a knowledgeable and accessible technical staff, just as in the real world.

The key to this strategy is in its second step. Is your interaction with the customer limited to just selling a product that sits on a shelf until a competitor comes by with a better price? Does your added value simply mimic everybody else’s? Will the customer associate a positive or negative 'experience' with your brand?

Or are you engaged with the customer in transactions which are offerings that engage the customer in an ongoing dialog with you throughout the life of the contract? That no competitor can improve on because the customer essentially designed and priced it?
Physical products that are also switching costs already exist in other industries. The first insurer who can manufacture the same from the world of information, and serve it in the form of flexible content, will have a sustainable competitive advantage.

Legal Disclaimer: The views expressed in this essay are those of the aurthor and do not necessarily reflect those of General Cologne Re.